2017 (4) TMI 66 - HC - Income Tax

Revision u/s 263 - advance received - Held that - CIT-A has observed that it was advance received by Assessee against future supply and could not have been treated to be income in that year for the reason that it was a contingent liability and in future money could have been refunded in case of incomplete supply or cancellation of order or missing of any article etc. However, it is evident from record that aforesaid money was received by Assessee in furtherance of his trading activities for supply, and, therefore, has to be shown as income in the year in which it was received. Mere fact that there may be a contingency of refund of that amount in future will not make any difference inasmuch in the year in which it was received, it has to be shown as income. The logic given by CIT is clearly misconceived, illegal and irrational. When we questioned on this aspect, learned counsel appearing for Revenue, could not dispute that once an amount has been received in a particular year, which satisfy the definition of Income under Section 2(24) of Act, 1961, it has to be shown as income in that year and cannot be carried forward in the next year on any presumed contingency. Therefore, on this aspect, we find that order passed by AO cannot be said to be erroneous in any manner and Tribunal has rightly held in favour of Assessee. Credit card payment - CIT has observed that no enquiry was made by AO as to whether entire amount was business expenses or personal expenses - Held that - Tribunal on the contrary has observed very categorically that AO has made a proper enquiry with respect to debit entry of ₹ 27,75,722/-. The finding recorded by Tribunal, therefore, is a finding of fact with regard to enquiry and even otherwise, we find that CIT himself has not made any enquiry to find out whether expenses allowed by AO towards payment through credit card were erroneous. In absence of any such finding, and for observing merely that no enquiry was made by AO, an order under Section 263 could not have been passed for the reasons that conditions for attracting Section 263 are that order passed by AO is erroneous and prejudicial to the interest of Revenue. We, therefore, answer the aforesaid question also against Revenue and in favour of Assessee.

Summary

Issues:
1. Justification of setting aside CIT's order under Section 263 without appreciating Section 143(3) of the Income Tax Act, 1961.
2. Tribunal's authority to substitute reasoning regarding enquiry and application of mind.
3. Requirement of a reasoned order by the assessing officer on each issue under Section 263.

Analysis:

Issue 1:
The appeal arose from a judgment by the Income Tax Appellate Tribunal regarding the assessment year 2008-09. The Tribunal set aside the Commissioner of Income Tax's order under Section 263 on two grounds related to credit card payments and provisions for expenses. The Tribunal found the CIT's reasoning erroneous as the money received by the Assessee was in furtherance of trading activities and had to be shown as income in the year received, irrespective of any future contingencies. The Court held that the CIT's logic was misconceived and upheld the Tribunal's decision in favor of the Assessee.

Issue 2:
Regarding the credit card payment, the CIT observed a lack of enquiry by the assessing officer into whether the amount constituted business or personal expenses. The Tribunal, however, found that the assessing officer had conducted a proper enquiry into the matter. The Court noted that the CIT failed to make any independent enquiry and merely criticized the assessing officer's process. As per the requirements of Section 263, an order can only be deemed erroneous if it is prejudicial to the interest of Revenue, which was not established in this case. Thus, the Court ruled in favor of the Assessee on this issue as well.

Issue 3:
The Court concluded that the assessing officer's order was not erroneous in either of the aspects under consideration. The Tribunal's findings were upheld, emphasizing the need for a reasoned order by the assessing officer on each issue. Since the CIT failed to establish any errors in the assessing officer's decision-making process, the Court answered all questions against the Revenue and dismissed the appeal accordingly.